“The idea that the USPTO must disgorge maintenance fee payments collected for patents later invalidated in post grant review proceedings has some merit.”

by: Ben Brownlow, Senior Vice President, Licensing | May 15, 2018

If you or a loved one own a patent grant that was recently extinguished in an inter partes review (IPR) or any other U.S. Patent and Trademark Office (USPTO) post-grant review proceeding, you may want to pay attention.

A group of justifiably frustrated inventors who have lost their patent rights in such post-grant review proceedings filed a class action complaint (Christy, Inc. v. U.S.)[i] against the United States Federal Government last week. Their collective grievances lie with the USPTO which issued to the class members valid patent grants that were later invalidated by the Patent Trial and Appeal Board (PTAB) in post-grant review proceedings. Although there are a several of allegations in the complaint, the primary allegation is that invalidating the members’ property rights constitutes a taking without just compensation in violation of the Fifth Amendment.

The class is seeking damages for its members in excess of $100 million for the value of canceled patent claims, including anticipated royalty payments, reimbursement of issuance and maintenance fees paid, attorney fees spent defending patents in IPRs, and any investments made in the patented technologies. The gist of their argument is that, but for the fact that the USPTO granted this personal property right to the patent owner, the patent owner “would not have invested the time, resources, and money into the subject inventions and the monetization of those inventions.”

Naturally, if this is the case, the USPTO should never have collected (or be allowed to keep) any issuance fees or maintenance fees for any of the patents and claims that have been invalidated in any PGP process, and the patent owners of these patents should never have had to defend these patents (which were rightfully and reasonably defended because each of them was presumed valid by statute) in the PGP proceeding, which often costs hundreds of thousands of dollars in attorney fees and expenses to defend. But for the fact that the patents were issued (and a property right granted in the first place), the patent owners would not have invested the time, resources, and money into the subject inventions and the monetization of those inventions, whether through product development or otherwise.[ii]

The core value of a patent is defined by the precise wording of the claim language settled on through the patent examination process. The claims outline the scope of the invention and provide a description of what it is the patent holder has a right to exclude others from making or doing. Patent holders have, for hundreds of years, used their patent grant to invest and secure outside investment in commercializing the subject invention with the confidence that they will have exclusive use rights to the idea defined by the claims that survive patent examination. Patent owners can also exercise this right to exclude by licensing its invention to others in exchange for a one-time or ongoing royalty payment. The Christy complaint highlights that patent owners are able to secure this type of investment based on this right to exclude, and the right to exclude is bolstered by the statutory presumption of validity for a patent grant.[iii]

As patent policy and jurisprudence continues to erode the reliability of patent grants (§101, America Invents Act, etc.) and the associated right to exclude, it’s no shock that investors are now less likely to invest in risky start-up ventures. In fact, the complaint notes that some experts have estimated that the IPR process, which has only been in place since the passing of the AIA in 2011, has damaged the economy to the tune of $1 trillion dollars.[iv] Think about all of the businesses that have seen their patents killed by the PTAB. In many cases these patents are 10 to 15 years post issuance after businesses have relied on the patent grant and the right to exclude to justify investing substantial resources in developing the underlying technology. Once the patent is invalidated, competitors are free to copy the idea

Patents provide the owner with the right to exclude others from making, using, offering for sale, or selling the invention in the United States for a limited term of years so long as maintenance fee payments are paid. After the prescribed term of the patent elapses, the invention embodied in the patent will be freely available for public use. In Oil States, the Supreme Court held that (i) the IPR process is constitutional under Article III and the Seventh Amendment; and (ii) patent rights are public property rights, similar to a franchise granted to a private entity to build a railroad. The majority opinion went on to emphasize, however, that their decision “should not be misconstrued as suggesting that patents are not property for the purpose of the Due Process Clause or the Takings Clause.”[v]

The idea that the USPTO must disgorge maintenance fee payments collected for patents later invalidated in post grant review proceedings has some merit. In its opposition brief submitted to the Supreme Court in the recently decided Oil States,[vi]the USPTO characterized these reviews as an adjudicative mechanism by which the executive branch can cancel bad patents that should not have issued in the first place (due to a deficient prior art search, for example). The USPTO even argued that numerous statutes contain similar language permitting an agency to correct prior errors, for example, for the overpayment of government benefits.[vii] So if the USPTO made an error in granting a patent to a class member, it seems reasonable that the USPTO should return the issuance and maintenance fees collected as a result of its own administrative error.

The extensive backlog of pending patent applications at the USPTO combined with a shortage of well-trained patent examiners seem to be more pressing issues if the US patent system is to regain its status as a global leader in intellectual property protection and the promotion of innovation. By shifting resources from the PTAB to the front end of the examination process, the USPTO can ensure fewer erroneous patents are issued which should increase inventor and investor confidence in the reliability of the patent grant and encourage business ventures that might otherwise not have a chance of success due to insufficient capital investment. The smart money knows that patent quality and reliability have been deteriorating for years and that PTAB “death squads” remain available to defendants that wish to avoid culpability for infringement.

According to the law firm (Heninger Garrison Davis, LLC) representing the plaintiffs in this class action, you can still join the class if you are an individual or entity with patent claims invalidated by post-grant review proceedings![viii]